Wirraway
6th Oct 2004, 04:03
http://www.stuff.co.nz/
Qantas best placed for Asian alliance
06 October 2004
By TANSY HARCOURT
The ducks were all in a row for Geoff Dixon to bow out at the top. At 63 years of age, after one of the most difficult periods in Qantas' recent history, he had just steered Australia's flagship carrier to its highest profit.
But instead of retiring when his contract expired in August, Mr Dixon accepted the invitation of the board to sign up for another three years to pilot Qantas through what could be the most exciting period in its history.
Its drawn-out alliance deal with Air New Zealand is dead, leaving a clean slate for both parties to go forward.
Suddenly, British Airways is gone from the Qantas share register and Mr Dixon is free to explore opportunities in Asia as never before, after being strategically restricted by the decade-long equity alliance with British Airways.
For Qantas, the public focus has been on Singapore – where the airline's main Asian hub is – and talk of an alliance or even merger with Singapore Airlines.
But Singapore may not be the only game in town for Mr Dixon.
Qantas' decision last week to "out" the Singapore Government's investment vehicle Temasek, which owns 57 per cent of Singapore Airlines, as a 2.9 per cent shareholder in Qantas after BA sold its 18 per cent stake showed there might be other things afoot in Mr Dixon's Asian plan.
The Singaporeans are believed to have been miffed by the Qantas revelation, but perhaps it was just Mr Dixon keeping his rivals on their toes.
Though Qantas wants to do a deal in the region, it has to be on its terms, and the airline wants its competitors to know that it has options. And Qantas does not want another airline, or an investment company that controls another airline, sneaking up on its share register without approaching it first.
There is no doubt a deal with Singapore Airlines makes sense. Both airlines are among the most profitable carriers in the world.
Both face growing competition from Middle East carriers, such as Emirates Airline, picking off lucrative Asian and European routes, and relentless pressure on costs.
Qantas wants to tap the enormous number of people who live in Southeast Asia and the Singapore Government needs Qantas' business to protect its economic viability.
But the centre of Asian economic activity is gravitating north to China, making Hong Kong-based Cathay Pacific an attractive alternative as an alliance partner for Qantas.
Freight and passenger loads from China have increased at a hefty rate of about 10 per cent a year, growth rates that analysts expect will be maintained for the foreseeable future.
The United States Department of Commerce estimates that by next year China will have notched up cargo turnover of 2.7 million tonnes and passenger volume of 100 million.
The booming Chinese economy is attracting business in droves and recently the US and China negotiated a bilateral agreement to allow for greater air services between the two countries.
For Australia, China is still a growing market, but in a few years it is expected to be a major destination for Qantas.
The problem for Qantas is that it has a lot more leverage to do a deal with Singapore Airlines than it does with Cathay, because aviation is crucial to Singapore's economy and Qantas is the second-biggest user of its Changi Airport as a hub.
But perhaps the way for Qantas to deal itself a seat at the table with Cathay's owners, the Swire Group and the Chinese Government, is the fear of what it could do instead – that is, a deal with Singapore Airlines to create a regional super airline.
That same fear of Qantas tying up with someone else could partly explain why Temasek has bought shares in Qantas.
It is worth noting that the motivations of state-owned Temasek may not necessarily be the same as those of the companies it owns, such as Singapore Airlines.
"Governments are incentivised by gdp growth and not necessarily by the return on equity of their investments. The distinction is important when assessing aviation policy," says Merrill Lynch analyst Simon Gresham.
He notes that it is in the Singapore Government's best interest to promote healthy competition between Singapore Airlines and Qantas, given their status as the two biggest users of Changi Airport.
But if Qantas is determined to do a deal and regional consolidation is to take place, then the idea of that happening with any carrier other than Singapore Airlines would be an even less attractive prospect to the government than having its two biggest airline customers tie up.
Hence Temasek's move on Qantas could be perceived as an attempt to grab a blocking stake rather than necessarily being a precursor to a full-blown merger.
Before British Airways' sell-down of its 18.25 per cent stake in Qantas last month, the region's airlines had been trying to position themselves as strongly as possible in anticipation of a consolidation in the next few years.
But with British Airways' sudden decision to sell out of Qantas and focus on aviation consolidation in Europe, the jostling in this region has begun in earnest.
Until recently, a deal between Cathay Pacific and Qantas would not have made much sense. The two are already part of the oneworld alliance and therefore have code-share agreements in place, plus they both have had a safe hold on the Australia-to-Hong Kong route.
But with Virgin Atlantic due to start flying Australia-to-London via Hong Kong at the end of this year, and China-based Dragonair also about to start the Australia-Hong Kong route, and the doubling of air-service rights between the two countries, that route could be about to get a lot tougher.
If there is increased competition, some analysts say there could be a strong case for Qantas and Cathay Pacific to enter a joint services agreement on Australia-Hong Kong, similar to the one Qantas has with British Airways on the "kangaroo route" between Australia and Britain.
Be it with Singapore Airlines or Cathay Pacific, Qantas has the potential to be in a very powerful position in Asian aviation consolidation.
=========================================
Qantas best placed for Asian alliance
06 October 2004
By TANSY HARCOURT
The ducks were all in a row for Geoff Dixon to bow out at the top. At 63 years of age, after one of the most difficult periods in Qantas' recent history, he had just steered Australia's flagship carrier to its highest profit.
But instead of retiring when his contract expired in August, Mr Dixon accepted the invitation of the board to sign up for another three years to pilot Qantas through what could be the most exciting period in its history.
Its drawn-out alliance deal with Air New Zealand is dead, leaving a clean slate for both parties to go forward.
Suddenly, British Airways is gone from the Qantas share register and Mr Dixon is free to explore opportunities in Asia as never before, after being strategically restricted by the decade-long equity alliance with British Airways.
For Qantas, the public focus has been on Singapore – where the airline's main Asian hub is – and talk of an alliance or even merger with Singapore Airlines.
But Singapore may not be the only game in town for Mr Dixon.
Qantas' decision last week to "out" the Singapore Government's investment vehicle Temasek, which owns 57 per cent of Singapore Airlines, as a 2.9 per cent shareholder in Qantas after BA sold its 18 per cent stake showed there might be other things afoot in Mr Dixon's Asian plan.
The Singaporeans are believed to have been miffed by the Qantas revelation, but perhaps it was just Mr Dixon keeping his rivals on their toes.
Though Qantas wants to do a deal in the region, it has to be on its terms, and the airline wants its competitors to know that it has options. And Qantas does not want another airline, or an investment company that controls another airline, sneaking up on its share register without approaching it first.
There is no doubt a deal with Singapore Airlines makes sense. Both airlines are among the most profitable carriers in the world.
Both face growing competition from Middle East carriers, such as Emirates Airline, picking off lucrative Asian and European routes, and relentless pressure on costs.
Qantas wants to tap the enormous number of people who live in Southeast Asia and the Singapore Government needs Qantas' business to protect its economic viability.
But the centre of Asian economic activity is gravitating north to China, making Hong Kong-based Cathay Pacific an attractive alternative as an alliance partner for Qantas.
Freight and passenger loads from China have increased at a hefty rate of about 10 per cent a year, growth rates that analysts expect will be maintained for the foreseeable future.
The United States Department of Commerce estimates that by next year China will have notched up cargo turnover of 2.7 million tonnes and passenger volume of 100 million.
The booming Chinese economy is attracting business in droves and recently the US and China negotiated a bilateral agreement to allow for greater air services between the two countries.
For Australia, China is still a growing market, but in a few years it is expected to be a major destination for Qantas.
The problem for Qantas is that it has a lot more leverage to do a deal with Singapore Airlines than it does with Cathay, because aviation is crucial to Singapore's economy and Qantas is the second-biggest user of its Changi Airport as a hub.
But perhaps the way for Qantas to deal itself a seat at the table with Cathay's owners, the Swire Group and the Chinese Government, is the fear of what it could do instead – that is, a deal with Singapore Airlines to create a regional super airline.
That same fear of Qantas tying up with someone else could partly explain why Temasek has bought shares in Qantas.
It is worth noting that the motivations of state-owned Temasek may not necessarily be the same as those of the companies it owns, such as Singapore Airlines.
"Governments are incentivised by gdp growth and not necessarily by the return on equity of their investments. The distinction is important when assessing aviation policy," says Merrill Lynch analyst Simon Gresham.
He notes that it is in the Singapore Government's best interest to promote healthy competition between Singapore Airlines and Qantas, given their status as the two biggest users of Changi Airport.
But if Qantas is determined to do a deal and regional consolidation is to take place, then the idea of that happening with any carrier other than Singapore Airlines would be an even less attractive prospect to the government than having its two biggest airline customers tie up.
Hence Temasek's move on Qantas could be perceived as an attempt to grab a blocking stake rather than necessarily being a precursor to a full-blown merger.
Before British Airways' sell-down of its 18.25 per cent stake in Qantas last month, the region's airlines had been trying to position themselves as strongly as possible in anticipation of a consolidation in the next few years.
But with British Airways' sudden decision to sell out of Qantas and focus on aviation consolidation in Europe, the jostling in this region has begun in earnest.
Until recently, a deal between Cathay Pacific and Qantas would not have made much sense. The two are already part of the oneworld alliance and therefore have code-share agreements in place, plus they both have had a safe hold on the Australia-to-Hong Kong route.
But with Virgin Atlantic due to start flying Australia-to-London via Hong Kong at the end of this year, and China-based Dragonair also about to start the Australia-Hong Kong route, and the doubling of air-service rights between the two countries, that route could be about to get a lot tougher.
If there is increased competition, some analysts say there could be a strong case for Qantas and Cathay Pacific to enter a joint services agreement on Australia-Hong Kong, similar to the one Qantas has with British Airways on the "kangaroo route" between Australia and Britain.
Be it with Singapore Airlines or Cathay Pacific, Qantas has the potential to be in a very powerful position in Asian aviation consolidation.
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